Why are energy prices rising? Hint: It's not just data centers

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Rising electricity and gas bills are hitting households nationwide as utilities win rate hikes, aging power grids need upgrades, and growing energy demand and natural gas prices push costs higher.

If you’ve noticed your electric bill creeping up these past few years, you’re in good company.  Electric and gas utilities asked for permission to increase rates by a total of $31 billion last year — double what they asked for the year before. In most cases those rate increases were approved, according to nonprofit PowerLines.

Osyrus Bolly lives in Little Rock, Arkansas, and his electric and gas bills are about to explode again.

“We’re all experiencing this winter storm, and you have no choice but to run the heat all day long, especially if you have children,” he said.

Completely aside from the storm, his bills have already been rising.

“It’s went up $100 over the last few years for gas and electricity,” Bolly said.

He said he’s annoyed that the public service commission keeps approving the utility’s rate increases: “A lot of corporate welfare, I would say.”

Every utility market is different, but overall electricity and natural gas are among the biggest drivers of inflation, according to nonprofit PowerLines.

“Utility bills have gone up about 40% over the past five years,” said Charles Hua, PowerLines executive director.

It’s not just because of data centers, which are geographically concentrated. In fact, in a lot of places, it’s not even mostly because of data centers.

“Our grid is getting old. We’re not using it efficiently, so it costs a lot of money just to replace and repair and modernize our grid infrastructure,” Hua said.

For years, there was underinvestment in the power grid as a way to keep prices down, according to Thomas Rowlands-Rees, head of power market analysis at Bloomberg. He said underinvestment hadn’t been a problem, because U.S. power demand was stagnant.

U.S. power demand is definitely not stagnant anymore, and the long delayed upgrade bill is catching up with all of us, Rowlands-Rees said.

“Demand growth a decade ago was running about half a percent per year. In the past three or four years, it’s ticked up to one-and-a-half percent per year,” said Dan Pickering, cofounder of Pickering Energy Partners.

That growth came from population growth, reshoring of industrial activity, and just more things, like cars, that are electric. Add on top of that data centers, and demand growth is expected to increase from 1.5% to 2.5% each year.

But there’s another thing driving electricity and gas costs up: The market price of natural gas, which powers many power plants.

“There’s an upward trend in natural gas prices right now,” said Bloomberg’s Rowland-Rees.

One reason? New shipping terminals allow the U.S. to export more of it, leaving less gas here at home, and pushing up prices.  

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Why are energy prices rising? Hint: It's not just data centers

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